Captive power units turn to Russia as domestic coal supply fails to resume

Reeling from domestic coal shortage, captive power plants (CPP) have resorted to importing coal from Russia and shift to grid power.

Despite that, their condition is worsening as close to 30 per cent of the CPPs across the country are shut as they battle zero domestic supply for a year now. Most of them are unable to procure costlier imported coal.

Steel, cement, metals and allied industries build their own power plants (captive units) to cater to the energy demand during the manufacturing process.

Chennai-based India Cements has said that it has already imported two shipments of Russian coal due to shortage of domestic supply. 

“Most of our plants have coal-based captive power generation. The cost of captive generation is now more than the grid cost. Hence, we shut down all captive power units and resorted to grid power,” said N Srinivasan, vice-chairman (V-C) and managing director (MD), India Cements.

During the last quarter, India Cements saw a 54 per cent rise in power and fuel costs alone. According to producers, the cost of power from captive units went up to as high as Rs 10 a unit compared to Rs 7 a unit for grid power.

From the steel industry, players like Jindal Steel and Power (JSPL) and ArcelorMittal Nippon Steel India had reportedly imported coal from Russia.

India Cements indicated that it can import from countries like Australia, Indonesia or South Africa. But the discounts on Russian coal are making it more attractive for the industry. Earlier, there were reports that India's largest cement producer UltraTech Cement and J K Lakshmi Cement too were resorting to discounted Russian coal.

Representative body, Indian Captive Power Producers’ Association (ICPPA), told Business Standard that coal-based captive power plants have stopped generation due to coal shortage and high cost of operations. Or, they shifted to buying power from the grid or coal from the global market.

“Almost 30 per cent of CPP generation has shifted to grid in the last few months. CPPs, which are away from pitheads, are suffering the most and the Indian Railways is not supplying them with rakes,” said Rajiv Agarwal, Secretary General, ICPPA.

Shift of power demand of the CPPs on grid leads to demand surge for that state, which in turn leads to more pressure on the domestic coal supply.

India has a total installed CPP capacity of 78,000 megawatt (Mw), out of which 40,000 Mw or 55 per cent are thermal-coal based, which require around 200 million tonnes (MT) coal per annum.

According to the ICPPA, there is close to $30 billion worth of investment across CPPs in the country. And, nearly 1.5 million workers are employed directly and indirectly in this sector.

Coal-Mint, a coal price reporting agency, recently said that India procured 2.06 MT of coal from Russia, making it the third largest supplier.

Overall, Indian coal imports, including shipments of anthracite and PCI coal, were nearly 10 per cent lower in July at 23.8 million tonnes. This compares with the record imports of 26.29 million tonnes in June.

Recently, 10 different industrial associations wrote to the Prime Minister’s Office (PMO) seeking his intervention and that equitable coal supply should be ensured between power and non-power sectors. They said the cost of coal for these sectors have doubled as they have to purchase costlier imported coal.

Since August last year, when the coal demand-supply mismatch started, the non-power sector, including CPPs, has seen coal dispatch fall by 33 per cent.

Since August last year, the Centre directed Coal India (CIL) to prioritise the power generation units for coal supply and divert the coal from other sectors, if need be.

“Since then, the situation has just deteriorated and we are scrambling for options. Bigger players are importing coal which is costlier, but smaller players do not even have that capital. Rate of coal in e-auction by CIL has also gone up due to the increased demand,” said an executive of a steel company.